What is customer churn and how can you reduce it?

What is customer churn?

Customer churn, often simply referred to as churn, is the percentage of customers who stop using your service during a given timeframe.

It's a crucial metric because it directly impacts your revenue and growth potential.

Why does customer churn matter?

If you regularly churn customers, it means you're losing customers faster than you can gain new ones, which is a recipe for disaster.

According to Forrester, it costs five times more to acquire new customers than it does to keep an existing one.

A report by Harvard Business School also found that on average, a 5% increase in customer retention rates results in 25%-95% increase of profits.

So reducing churn not only helps your own workload, it also results in increased profits for your business.

How do you calculate churn rate?

To calculate churn rate you divide the number of customers lost by the number of customers you had.

For example, if you started with 100 customers and lost five over a month, your churn rate would be 5%.

So your formulate would look like the below.

(5 ÷ 100) x 100 = 5%.

It's also essential to understand the difference between voluntary and involuntary churn.

Voluntary churn occurs when customers decide to leave your service, often due to dissatisfaction or finding a better offer elsewhere. 

Involuntary churn, on the other hand, happens when customers are unable to continue using your service due to factors like payment issues or changes in their circumstances.

Both types of churn matter and should be analysed separately to tailor your retention strategies effectively.

What is a good customer churn rate for your business?

Customer churn rates can look very different depending on the industry.

For example, in industries like telecommunications, churn rates can hit 20% to 30% annually, while in SaaS (Software as a Service), a churn rate under 10% is usually considered healthy.

In the UK financial advice sector, the numbers are much more favourable. According to market research consultancy NextWealth’s Financial Advice Business Benchmarks 2023 report, financial advice firms have a solid track record of client retention, despite market challenges.

In fact, while only 11% of revenue comes from new clients, 53% of firms report steady retention rates. This highlights how crucial client retention is for the sector, with churn likely below 10% in most cases​.

If your churn rate is edging over 10%, particularly for your high-value clients, it’s a clear sign that something needs fixing, whether that’s service delivery, communication, or the overall client experience.

Regularly measuring how much you churn customers and getting client feedback will help you stay on top of potential issues and keep your business competitive.

Why do customers leave, and how can you prevent it?

Understanding why businesses churn customers is vital to crafting effective retention strategies.

Here are some common reasons customers decide to leave:

• Poor customer service: If customers feel undervalued or unsupported, they're more likely to seek alternatives.
• Lack of engagement or communication: Customers appreciate feeling connected to your brand. Silence can lead to abandonment.
• Better offers from competitors: Attractive deals from other companies can lure customers away, particularly if they feel their needs aren’t being met.
• Product or service dissatisfaction: If your product or service doesn't live up to expectations, customers will leave.

Identifying these issues early can help you put measures in place to address them proactively.

How can you effectively reduce customer churn?

Now that you know the reasons behind churn, let’s dive into actionable strategies on how to reduce customer churn.

Here are six effective methods:

1. Improve customer service and support

Invest in your customer service team to ensure they’re well-trained and responsive. Happy customers are loyal customers.

By providing top-notch support, you’ll not only solve issues quickly but also show your clients that you value their business.

2. Build stronger relationships through personalised communication

Tailor your communication to meet individual customer needs.

Personalised emails, check-in calls, and targeted recommendations make customers feel valued and understood, increasing the likelihood of retention.

3. Offer customer loyalty programmes

Rewarding loyal customers can significantly reduce churn.

Implement loyalty programs that offer discounts, exclusive access, or benefits for continued patronage.

This creates a win-win scenario where customers feel appreciated and incentivised to stay.

4. Collect and act on customer feedback

Regularly seek feedback to understand your customers’ experiences and expectations. More importantly, act on this feedback.

Show customers that you’re listening and willing to make changes based on their suggestions.

5. Use data analytics to predict and address churn risk

Leverage data analytics to identify patterns and predict churn.

By analysing customer behaviour, you can pinpoint those at risk of leaving and take action to retain them before they decide to go.

6. Offer incentives to retain customers

Sometimes, offering a little extra can go a long way. Consider providing incentives, such as discounted services or bonuses for contract renewals.

These incentives can encourage customers to remain with your firm, reducing churn.

Implementing these strategies can create a more loyal customer base and significantly reduce customer churn in your business.

What are the best practices for retaining customers?

Understanding how to reduce customer churn rate requires implementing best practices for maintaining customer loyalty.

Here are some proven strategies that can help you build lasting relationships with your clients:

Proactive engagement

Don’t wait for customers to reach out with problems.

Regularly engage with them through newsletters, updates, or personal check-ins to reinforce your commitment to their success and reduce customer churn.

Continuous value delivery

Ensure that your clients consistently see the value in your services.

Whether it's through education, regular updates, or exceptional service, keep delivering value to justify their loyalty.

Clear and transparent communication

Keep your clients informed about any changes, new offerings, or issues.

Transparency builds trust, which is vital for customer retention.

Regularly updated offerings

Stay ahead of the competition by continually evolving your services.

Update your offerings regularly to ensure they meet your customers' changing needs.

How can you measure and track customer churn?

Tracking churn regularly is crucial to maintaining a healthy business. Monitoring this metric allows you to identify trends and make necessary adjustments quickly.

Several tools and methods are available to measure and analyse churn effectively. Customer relationship management (CRM) software often includes churn tracking features, enabling you to see how your customer base evolves over time.

Analytics platforms like Google Analytics or Tableau visualise churn trends, and help you to identify patterns in customer behaviour. Predictive analytics tools like ChurnZero can forecast which customers are likely to leave, allowing you to take pre-emptive action.

Customer satisfaction surveys can also provide invaluable insights to reduce customer churn. By asking customers about their experiences and perceptions, you can identify areas for improvement before they decide to leave. 

Want to work with Unbiased?

Knowing how to reduce customer churn comes down to staying engaged with your clients and understanding their needs.

By regularly checking in, using personalised communication, and making the most of data analytics, you can keep your churn rate low and ensure your customers stay loyal. 

When you implement the right strategies, you're not just building loyalty; you're also creating a solid foundation for your business to thrive in the long run. 

Join Unbiased Pro to master customer retention and boost your business’s long-term success.